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Key take home from the ameliorating LG Electronics Ruling of the Special Bench

A trademark is considered to be an intangible asset when a license is granted for its use; tantamounting to a transfer of value which is subjected to transfer pricing (TP) rules.

The controversial Advertising, Marketing and Promotion (AMP) activities undertaken by enterprises not owning a trademark (but retaining it) has long been a focus issue for TP audits. In such cases, the tax authorities have argued that the licensor needs to compensate the licensee for undertaking exorbitant AMP activities. Where it is perceptible that the marketing spend is extraordinary or the use of an intangible is obligatory; in such cases a marketing intangible or economic ownership may be considered to have been created.

The recent ruling of the Special Bench of Delhi Tribunal in the case of LG Electronics India Pvt. Ltd. that ingenuously discusses the creation and compensation for marketing intangibles, only comes to underline this trend. The Special Bench concluded that TP adjustment in relation to AMP spend by the licensee for creating/ improving marketing intangibles for and on behalf of an Associated Enterprise (AEs) or the licensor is permissible and that earning a markup from the AEs in respect of AMP expenses incurred for and on behalf of the AE is allowable.

From the treasury standpoint, local AMP expenditure adds value to the trademark and as such, the licensee should be compensated at arm’s length compensation for its elevation. This is bed-racked on the notion that AMP investment leads to the trademark becoming more recognizable and valuable in the marketplace.

In a nutshell, adjustment on account of licensee’s expenses in connection with promotion of marketing intangibles, which even the licensor relishes is perceived to be a virtual reality after the Special Bench ruling (or at least until such time the principles are overturned or balanced in appeal before higher appellate forums).

- The Author is a transfer pricing expert and is on-board TheFinanceBite team. You can write in to address your case specific queries at thefinancebite@gmail.com

Its that time of the year when most of us are reminded about savings to our incomes, that time when we’re made to realise that ELSS saving were infact better choices than dolling that money out on night-outs and (oh-that-sexy) expensive tablet you just bought. That time when your faces drown as you look at the tax computations bankroll the Income tax Babu’s Pockets.

TheFinanceBite- Personal taxes guide

Or quite simply, that time when our savings declarations are due to our employers for more/no tax deduction from our remaining existence on the planet.

The Deductions: These are based on actual evidences and the government’s way of showing appreciation for contributing to the economy’s health.

Your 80C falls here and so do your mediclaim policy payments.

We all have some bit of knowledge about the 80C way of saving taxes. We’ll let you know of some of the lesser known expenses you can put in under your 80c dclarations. read on:

Tuition fee:Your child’s tuition fees component is exempt under this section. (mind you, only tuition fee, no building/development/lab fund).But Why this? Remember, its the government’s way of thanking you, because “Padhega-tabhi-to-badhega-India”

Bank Interest: Interest earned during the year upto Rs. 10,000 is exempt in a year under section 80C

Health Insurance: A deduction of up to Rs 15,000 can be claimed in respect of the health insurance premium covering you and your wife and dependent children. You can claim an additional exemption of Rs 15,000 on premium payments made for parents and a higher deduction of up to Rs 20,000 if one of your parents is a senior citizen. This is in addition to Rs. 1Lac 80C deduction.

Deduction for rent paid if you are not availing HRA: You can claim a deduction for rent paid to the extent of INR 2,000 per month even if your salary doesnot have a HRA component from your employer or you are self-employed. This deduction, available under Section 80GG, is subject to some conditions.

To more suggestions on your peculiar queries and burdening taxes, write to us at thefinancebite@gmail.com. We’ll rescue you from being the guy above to the dude here>. (Our services are free, we don’t need to remind you again)